Affordable Care Act: Is it affordable?

A new report showing a relatively modest increase in premiums for employee health coverage is either a validation or an indictment of the 2010 healthcare law, depending on whose spin you believe. Supporters cite the slowing rise in healthcare spending, while opponents retort that premiums are still growing faster than the economy or consumer prices. There’s a bit of truth to both sides, but more posturing. The biggest effects of the Patient Protection and Affordable Care Act won’t be seen until next year at the earliest. And while there have been some promising signs, there are worrisome ones as well.

The Kaiser Family Foundation’s report on employer-sponsored health plans reminds the public of a fact that’s often forgotten in the debate: Premiums were rising fast before the law was passed, with no end in sight. It’s fatuous to blame the law for premiums going up; the real question is how, if at all, the law has affected the rate of growth.

According to Kaiser’s research, average premiums rose 5% for single coverage and 4% for families from 2012 to 2013. The share paid by employees was effectively unchanged from the previous year, averaging $999 for single coverage and $4,565 for families. Those amounts are almost twice what they were 10 years ago. But premiums have grown much more slowly in the last two years than in the 2000s, when increases of more than 9% were common.

Economists say that premium growth slowed largely because of the slow economy. Other factors include higher deductibles and copays, which shift costs from insurers onto their customers, restrained spending on new technology and the introduction of more generic drugs.

The law’s provisions cut both ways. The new rules it imposes on insurers, such as the requirements to offer policies to all applicants and meet federal standards for coverage, put upward pressure on premiums (albeit more so on policies sold to individuals than on employer plans, which already meet many of those requirements). The pressure is offset to some degree by the caps the law places on insurer profits, as well as the efforts it makes to promote more efficient and higher quality healthcare.

Even supporters of the law acknowledge that it didn’t go as far as it might have to hold down healthcare costs, which are the biggest factor in rising premiums. The steps it does take are designed to produce savings over the long term; in the near term, it focuses mainly on covering more of the uninsured. And many of the cost-control efforts take the form of experiments within Medicare, under the hopeful assumption that the rest of the industry will adopt the ones that prove successful.

The most promising sign so far has been the premiums announced by the new exchanges that states are setting up to sell policies to people who aren’t covered by employers. In most cases, they have been lower than expected. Older and ailing consumers could see their costs go down, while young and healthy ones are likely to face higher premiums than they do today for less comprehensive coverage.

Analysts say the prices show that insurers are competing aggressively for the buyers who will be drawn into the market by new federal premium subsidies. To do so, they are seeking new ways to control costs, such as by sharing risks with doctors and hospitals and providing incentives for higher quality care. Such changes in the way healthcare is paid for and delivered are crucial in the long run, though they are easier to describe than achieve.

Of course, the law won’t accomplish anything if the government can’t implement it; a new delay or snafu is disclosed seemingly every week. Beyond that, the biggest risk is that younger, healthier people will defy the new mandate to buy coverage next year and remain uninsured. Although many could qualify for premium subsidies, they may opt instead to pay the relatively small federal penalty. And if insurers are stuck covering only sicker and riskier customers, premiums could quickly spiral upward.

The first sign of such problems may come a year from now, when the exchanges announce their premiums for 2015. For now, the data from Kaiser and the exchanges suggest that costs are headed in the right direction, even if it’s not clear how much credit to give the 2010 law.